Benzinga | May 25, 2021 01:23PM EDT

ROCE Insights For China Automotive Systems

China Automotive Systems (NASDAQ:CAAS) posted Q1 earnings of $2.84 million, an increase from Q4 of 152.55%. Sales dropped to $130.34 million, a 11.03% decrease between quarters. China Automotive Systems collected $146.50 million in revenue during Q4, but reported earnings showed a $5.41 million loss.

What Is Return On Capital Employed?

Return on Capital Employed is a measure of yearly pre-tax profit relative to capital employed by a business. Changes in earnings and sales indicate shifts in a company's ROCE. A higher ROCE is generally representative of successful growth of a company and is a sign of higher earnings per share in the future. A low or negative ROCE suggests the opposite. In Q1, China Automotive Systems posted an ROCE of 0.01%.

Keep in mind, while ROCE is a good measure of a company's recent performance, it is not a highly reliable predictor of a company's earnings or sales in the near future.

Return on Capital Employed is an important measurement of efficiency and a useful tool when comparing companies that operate in the same industry. A relatively high ROCE indicates a company may be generating profits that can be reinvested into more capital, leading to higher returns and growing EPS for shareholders.

For China Automotive Systems, the return on capital employed ratio shows the number of assets can actually help the company achieve higher returns, an important note investors will take into account when gauging the payoff from long-term financing strategies.

Q1 Earnings Insight

China Automotive Systems reported Q1 earnings per share at $0.1/share, which beat analyst predictions of $0.03/share.